The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Update: The repeal of the North Carolina state estate tax, retroactive to Jan. 1, 2013, is official; Gov. McCrory signed the law on 7-23-2013.

When it comes to state death taxes, nothing’s certain. In the spring legislative season: Indiana made the repeal of its inheritance tax retroactive to Jan. 1; Delaware decided not to let its temporary estate tax sunset on July 1; and Minnesota tweaked its estate tax to apply to non-residents who own property there through pass-through entities—and it added a gift tax.

Meanwhile, North Carolina is poised to be the next state to do away with its estate tax as its legislature grapples with major tax reform in the coming weeks. That would bring the tally of states where you have to worry about a separate state estate or inheritance tax down to 19 states--plus the District of Columbia. (The Tax Foundation has a detailed analysis of the competing House and Senate tax reform proposals in North Carolina here.)

“Each state is looking at the state estate tax based on revenue considerations,” says Charles D. Fox IV, an estate lawyer with McGuire Woods in Charlottesville, Va.

Is there a blue state-red state divide? The states with estate taxes tend to vote Democratic. The recipe for repeal: a Republican sweep in the statehouse and the governor’s office. That’s what happened in North Carolina last fall; newly elected Republican Governor Pat McCrory made estate tax repeal one of his campaign promises; and estate tax foes pressed on with grassroots efforts to push for repeal.

“A tax that affects somewhere between a dozen and 100 families each year in a state with 9 million-plus people is fundamentally unfair,” says Dallas Woodhouse, North Carolina state director with Americans For Prosperity.

The North Carolina estate tax affects few families. The state already exempts $5.25 million per person from the tax—matching the federal estate tax exemption. In 2010, 123 estates owed tax, and in 2011, only 23 did. The revenue loss is estimated at $52 million for fiscal year 2013-2014. Of course, that’s a guesstimate as the final tally depends on who dies in any given year.

North Carolina is home to three men on Forbes’ billionaires’ list who could benefit from the state estate tax repeal:

If repeal goes through in North Carolina, it would be retroactive to Jan. 1, 2013. “It’s a great bill because of automatic repeal,” says Palmer Schoening, a conservative strategist who publishes the Family Business Report. “North Carolina prides itself on being a bastion for retirees, but as it stands now their state isn’t friendly with respect to death taxes.”

Neighboring Tennessee repealed its inheritance tax last year with repeal effective Jan. 1, 2016 (the amount that is exempt from the state inheritance tax is going up each year: from $1.25 million this year, to $2 million in 2014 and $5 million in 2015).

Indiana also put in a gradual phase-out of its tax last year, with repeal effective Jan. 1, 2022, but in May Rep. Gov. Mike Pence signed a law to move up repeal, retroactive to Jan. 1. For non-relatives the exemption was a measly $25,000 with a 20% rate.

What about the states in the opposite camp? Delaware had a four-year “temporary” estate tax, set to expire on July 1. But in March, Dem. Gov. John Markell signed a law eliminating the planned sunset of its estate tax, proving that a temporary tax can easily lead to a permanent one.

And Minnesota, with an estate tax with a $1 million exemption, made a significant change by adding a state-level gift tax that kicks in on gifts above $1 million. That makes it the second state to have a gift tax. Connecticut is the other; its gift tax kicks in at $2 million. (Tennessee eliminated its state gift tax last year).

Minnesota also is trying to grab more revenue with tweaks that will disallow common ways folks now get around state death taxes. The new law pulls gifts made within three years of death back into the estate, and it requires non-Minnesota residents who own property in the state via a pass-through entity like a trust or partnership to include the value of that property in their estate for Minnesota estate tax purposes. (For more on Minnesota, see the Briggs & Morgan client alert here.)